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Banks say cutting rates still a challenge   2010-10-13 - VietNamNet/SGT

Several bankers say it still proves difficult to cut interest rates in the rest of the year, borrowing and lending alike, as instructed by the Government although their current capital has got a spur following amendments to Circular 13.

The general director of a bank in HCMC’s District 1 said that his bank would not lower the lending rate any more between now and the end of the year as its profit up to date was so low compared to the year’s target. In addition, given current deposit rates, mobilization in Vietnam dong at the bank cannot increase much so the possibility of trimming the rate would be low, he added.

Another banker in HCMC said the rate cut would be minimal if any.

After Circular 13 was amended, which effectively means quantitative easing, the amount of current capital has increased as banks can use part of corporate deposits under call terms for lending, a practice banned under the circular.

However, “although there is the possibility of lower lending rates, the reduction will not be substantial,” explained the banker, who serves as deputy director of the HCMC branch of a big bank.

In September, Vietnam Banks Association had meetings with banks in Hanoi and HCMC to encourage them to reduce interest rates under the Government’s requirement. The association encouraged banks to cut mobilization rates to 11% from October 15 from the current 11.2% per year.

Early this month, the association has sent a document asking banks to comply with the requirement, but Duong Thu Huong, the association’s general secretary, told the Daily that banks would look at each other before making any rate cut decision due to fear of losing depositors.

“Banks are very much hesitant over the rate cut as demanded by the association,” Huong said.

In fact, commercial banks have launched a lot of promotion programs to lure depositors. Besides, according to the leader of a joint-stock bank, several lenders even negotiate deposit rates with clients at this time.

However, Huong also said that besides amending the Circular 13, the interest rates are also determined by the country’s inflation rate this year, which usually gains a faster pace towards the year’s end, as seen in the September CPI at 1.31%.

In addition, deposit rates for the U.S. dollar and gold are increasing, making it harder to cut the rate in Vietnam dong. Therefore, Vietnam Bank Association has asked banks to lower their dollar and gold rates also.

Many banks said that their deposits in gold have strongly increased after the interest rates have increased to 1-2% per year.

According to the third quarter report of the State Bank of Vietnam, lending rates in Vietnam dong for agricultural sector, exporters, small and medium enterprises are around 12-12.5% at State-owned banks and 12.5-13.5% at joint-stock banks while rates for other loans are from 13% to 15% per year. However, only banks’ close corporate clients can enjoy those rates while others are charged at least one percentage point higher.

The report also said that mobilization and lending rates could not decrease to the levels asked by the Government (deposit rate at 10% and lending rate at 12%) due to high pressure on inflation and banks’ difficulties in mobilizing fund.

The new report of the National Financial Supervisory Commission said that after changes to Circular 13, the capital flow has got bigger but basically it is still restricted by the loans-to-deposit ratio at 80% for banks.

In 2009, banks’ outstanding loans accounted for 96.93% of total mobilization, and the ratio was 92.96% in the first half this year. Reducing the ratio further to 80% from October 1 has also proved a hard nut to crack for many banks.

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